Ep404: Gary Mishuris – Qualitative Judgment Is More Valuable Than Your Financial Model

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Quick take

BIO: Gary Mishuris is the Managing Partner and Chief Investment Officer of Silver Ring Value Partners, an investment firm with a concentrated long-term intrinsic value strategy.

STORY: Gary was developing a financial model that he used to recommend stocks for his company. He got so engrossed in the model that he forgot about other important aspects of investing, like the effects of a merger that had just happened in the company. He made mistakes, and the stock he recommended fell by 80%, losing money for his company.

LEARNING: Think about the qualitative aspects. Don’t depend on management for decision-making and make things as simple as possible, but not simpler.


“Have a checklist of behavioral biases and steps that you will need to take to try to minimize them.”

Gary Mishuris


Guest profile

Gary Mishuris is the Managing Partner and Chief Investment Officer of Silver Ring Value Partners, an investment firm with a concentrated long-term intrinsic value strategy. Prior to founding the firm in 2016, Mr. Mishuris was a Managing Director at Manulife Asset Management since 2011, where he was the Lead Portfolio Manager of the US Focused Value strategy.

Gary received an S.B. in Computer Science and an S.B. in Economics from the Massachusetts Institute of Technology (MIT) and teaches the value investment seminar at a local university.

Worst investment ever

In 2005, Gary was a senior analyst at a company before starting his firm. He was building the world’s biggest model ever. It had dozens and dozens of lines and a complex discounted cash flow analysis.

The charismatic CEO

Gary met with the CEO and listened to his story in the management pitch, and it sounded terrific. The pitch was about having a merger to cut costs. The CEO promised that the merger would come with good tidings for everyone.

While the CEO’s pitch sounded great, Gary had a few doubts about how two different businesses would work with two different cultures. He, however, figured they’d take the best from both companies.

Putting his model to the test

Gary started modeling and jumped right into quantifying things. One day, Gary was updating his model when he realized he’d made a mistake. He had linked to the wrong cell, and that boosted the value appropriately by 20%. He sent an email to everyone letting them know that he had made a mistake.

Digging deeper into his model

Gary continued to rely on his model. He, however, made a series of analytical mistakes, just getting lost in the model and forgetting the basics of investment. The merger caused so many issues that Gary overlooked, which could have potentially affected his model. The stock he had recommended went down 80%, and the company lost a decent amount of money.

Lessons learned

Think about the qualitative aspects

Think about the qualitative aspects long and hard before you put the numbers down. And if the quality doesn’t pass your filters, the numbers won’t matter; you should pass.

Don’t depend on management for decision-making

Talk to management, but make sure it’s a small input into your decision-making process. It’s very easy to get persuaded by a charismatic management team. Make sure that, at the very least, you counterbalance their point of view with an opposing point of view and kind of debiasing yourself.

Make things as simple as possible, but not simpler

Relatively simple models of summarizing economic reality focus on understanding things deeply. Then make sure you control your behavioral biases, and try to offset them when not impossible.

Andrew’s takeaways

The qualitative aspect is essential in value investing

A lot of people think that value investing is all about numbers. But what is critical is the qualitative aspect. Numbers are just a tool that helps us to understand something.

Complexity does not add value

The deeper you go into a financial model, the less benefit you get once you get past a certain point.

Actionable advice

Try to be systematic and rigorous. Have a checklist of behavioral biases and steps that you will need to take to try to minimize them.

No. 1 goal for the next 12 months

Gary’s number one goal for the next 12 months is to keep adding to his knowledge and moving his process slowly and steadily in a positive direction. Hopefully, those small changes build and snowball into meaningful improvement in the decades to come.

Parting words


“Keep learning, stay calm and just focus on the process.”

Gary Mishuris


Read full transcript

Andrew Stotz 00:01
Hello fellow risk takers and welcome to my worst investment ever stories of loss to keep you winning. In our community. We know that to win in investing, you must take risk. But to win big, you've got to reduce it. To join our community go to my worst investment ever.com and receive these five free benefits first, you get the risk reduction checklist I created from the lessons I've learned from all my guests. Second, you get my weekly email to help you increase your investment return. Third, you get a 25% discount on all Ace Don's Academy courses. Fourth, you get access to our Facebook community to get to know guests and fellow listeners. And finally, you get my curated list of the Top 10 podcast episodes fellow risk takers This is your worst podcast host Andrew Stotz, from a stance Academy, and I'm here with featured guest, Gary misura. Gary, are you ready to rock? I am. Let's do it. So let me introduce you to the audience. Gary misura is the managing partner and Chief Investment Officer of silver ring value partners, an investment firm with a concentrated long term intrinsic value strategy. Prior to founding the firm in 2016, Gary was a managing director at Manulife Asset Management since 2011, where he was the lead portfolio manager of the US focused value strategy, Gary received an SB in computer science and an SB in economics from the Massachusetts Institute of Technology. And just as a side note, he teaches the value investment seminar at a local university. Gary, take a minute and fill in for the tidbits about your life.

Gary Mishuris 01:42
Sure, so maybe just a quick story of how I got into value investing for the audience. I was studying at MIT, as you mentioned, during the tech bubble, which is about 20 years ago, and I was lucky enough to buy the only tech stock that didn't go up. And I say lucky enough. I was thinking I'm a smart guy, you know, I'm studying these subjects, I should be able to find a tech stock. And I was pretty poor at the time I worked two jobs that have very little savings. But whatever little ahead, I decided to put into the stock. And now the only stock literally didn't go up. And I was wondering what's happened when Warren Buffett came and spoke on campus at MIT and at the Sloan business school there and basically made me realize that what he was talking about was very different than what I was doing that what I was doing wasn't investing or speculating. And basically, that's how I got into value investing. I won't bore you with the 20 years between then and now. But that was kind of my start. The rest is history.

Andrew Stotz 02:45
Hmm. Interesting. And what is it that attracted you to value investing? I mean, it's not for everybody.

Gary Mishuris 02:53
No, I think you have to have the right temperament. And Charlie Munger and Buffett, and many others always highlight that it's the temperament that really differentiates the best investors. It's not that IQ or anything like that, which is a good thing, because I'm smart enough, but I'm not the world's smartest person. I think I like the puzzle solving aspect of it. I also like the fact you're looking at new things over and over again. But finally, I guess it suits my temperament because I'm pre logical and rational. And I pride myself as an engineer by training on the following a process and really trying to improve my process a little bit of time. And so investment approach that basically tries to be systematic and disciplined, really plays to my strengths. And probably something we minimize is my many, many weaknesses.

Andrew Stotz 03:42
That's great lesson for the listeners is that you find the strategy that really fits your personality. valuable. Well, now it's time to share your worst investment ever. And since no one ever goes into their worst investment thinking it will be tell us a bit about the circumstances leading up to and then tell us your story.

Gary Mishuris 04:00
Well, you know, it was from a while back not to say that I haven't had many bad ones since then. But it was circa 2005. I was a senior analyst at one of the predecessor firms of the company that I work at prior to starting my firm. And the company in question was sprint. Now this isn't the sprint that recently merged with, or rather it is with T Mobile, but it's, it's different. I mean, it's the predecessor company of sprint. And basically, the setup was as follows. You had a no merger between Nextel and sprint. I was relatively young analyst a few years out of college. And I've built I think the world's biggest model ever, you know, it had many, many lines. It had dozens and dozens of lines. It has a complicated discounted cash flow analysis and all that. On top of that, you know, I've met with a CEO whose name I'm happened to be Gary. Now, I'm a big believer in behavioral biases. I'm not sure if having the same first name effect of that, but maybe we do like people like ourselves, it's just one of those biases that we'll have these most of us have. And, you know, I kind of listened to Gary's story in the management pitch and sounds very good. Yeah, it was basically, you had, you know, you're gonna have this merger, you're gonna cut all these costs. And the best thing about those costs is I could put them right into my giant model, because, you know, it's easy, it's easy to quantify that, and put it into a cell. And they were gonna do all these wonderful things. And I remember having now kind of some, some questions like, wow, yeah, he's a pretty different businesses. Well, he's a pretty different cultures, but it was a no not problem, we really gonna ring fence the culture and really preserve it. And really, you know, make sure that things are safe and take the best from both companies and the usual Bs, kind of like you'd expected. And disabled at that point, I didn't know any better. And of course, I, you know, fell for it. And so I started modeling. And that was probably the first part of the mistake, you know, I just stopped thinking and I started modeling, we started kind of, which is easy for a guy who's the quantitative and likes numbers, right? You jump into trying to quantify things, then. So the reason this is probably the worst mistake is because I probably made seven or eight mistakes, combined into one here. And now. So I was kind of a senior analyst, and I was mentoring other analysts at the firm, and so forth. And then one day, and I recommended that we buy a position within. And then one day, I was updating my model. And I realized I literally made a mistake, not like a sophisticated mistake, but like the cell was pointing, linking to the wrong cell. And that boosted the value in appropriately with 20%. Free though, if they ever happens to most people, like the first inclination is like, Well, can I hide it somehow, right? Can they find some offsets and tinker with some other things in the model to get back to 20%? Because, like, Who wants to go raise your hand, say, Hi, my name is stupid. I just like literally linked to the wrong cell. And part of the basis of my recommendation is completely bogus. And it doesn't, and by the way, I went to MIT. Alright, so that's just not a fun thing to say. But also recognize a that's not the right thing to do. In general, and be you know, I think it's important to model intellectual honesty, right and do the right thing. So I've sent an email to everyone. So the guys, I made a mistake, it's a big one. And here's what it is, here's what I'm doing. I'm not, you know, so I felt slightly better, you know, I only felt nine out of 10 bad they got like, one point that for these being honest about it, and owning up to it. But that's not the end of it, because like everyone makes linky mistakes. Once in a while that this thing became a disaster, he came in pull up the stock chart for sprint, because it's, you know, kind of when the Bloomberg won't even pull it up, because it kind of went through several iterations. But I mean, we got involved in the 20s, I mean, the stock bottom, they think the low single digits or something like that. And all along the way, I kept saying, you know, rely on my model, and how cheaper was the remember, going back to liking discipline, liking a process, relying on the framework, that kind of discipline is what I'm all about. But here's the thing, you have to be disciplined about the right thing, you know, if you're disciplined about the wrong thing, you just know, for separating in your mistake, right. And very slowly, all the quality of things that I never paid attention to fully know the cultural mismatch, that two different networks, because you're combining incompatible networks and trying to migrate from one to another to save the costs. Management from the original Nextel, a team leaving, and far less competent management taking over all those things, those qualitative, maybe some more intangible factors, really, dwarf things, and eventually my value came down slowly. But you know, a little bit slower than the price. So it was a kind of a classic value trap in the sense that there really is no such thing as a value trap. Valid trap is essential when you make a mistake, you recognize it with a delay, and the market recognizes the mistakes slightly fast, and then you recognize your mistake. And at any given point, the stock appears to be a good value to you, because you compare in price and value, which is what you're taught to do. But then the next iteration, the stock is lower. So as you value and again, you can sell because it's again, undervalued and so forth, as until it goes down a lot. So basically, this stock went down 80% and I made, as I mentioned, from an Excel linking mistake to a you know, just another series of analytical mistakes just getting lost in the model and forgetting like the basics of like, like, why is this a good investment? Well, it's like a third tier company in a tough industry. Like, let's go back to lesson one one, you know, like, no, it's it's not they have a unionized labor force, they have no competitive advantage, or, you know, barring the melting at Nextel, business, they have a mediocre management team, they have a leveraged balance sheet, all the things that now kind of second nature, but my defense, this is probably, you know, four or five years into my career. But still, you know, I should have known better even at that point, but we lost a bunch of money. And I gained some experience. And maybe, you know, as they say, in poker, when a man with money meets a man with experience, the man will experience leaves with the money and the man with money, leaves with experience. I left with some experience there.

Andrew Stotz 10:58
Yeah. Well, tell us, how would you summarize the lessons you learn from that experience?

Gary Mishuris 11:04
What I guess one is, you know, think about the quality of aspects long and hard before you put anything the numbers down. Right? I think that's Mistake number one. And if the quality, if it doesn't pass your quality of filters, the numbers don't matter, you should just pass as Buffett says, you know, there has to tough pile and most things he just rejects us just doesn't know enough to make a conclusion one way or the other. I would say number two is, you know, maybe talk to management, but make sure it's a small input into your decision making process, I think it's very easy to kind of just get persuaded by a charismatic management team. And, you know, they got to be CEO and CFO or whatnot, because they're good at persuading people like the board of directors to make them see all right, you have to make sure that at the very least you counterbalance their point of view with opposing point of view and kind of D bias yourself. That's a three, go make things as simple as possible, but not simpler. Like a law model, I kind of cringe now, when someone shows me 100 line plus model, and they get that sometimes maybe for some unique situation, because some pharmaceutical business with ease into modeling drug with something like that, maybe it's warranted. But even then, if the investment is really compelling, it should scream at you that it's compelling. Like, if you really need a complicated model to really determine how amazing investment is, it just tells you that either you another business well enough to simplify it. Or it's just not that compelling. It's too close to call. And you're using this big, fancy Excel model to kind of bludgeon the truth into kind of fitting your narrative or the narrative you want to tell. So I think, relatively simple models of summarize economic reality, focus on understanding things deeply. And then making sure you control your behavioral biases, and try to offset them when not impossible. And oh, by the way, don't don't link to the wrong cell. Yeah.

Andrew Stotz 13:08
Well, let me summarize some of the things that I take away from it. I think the first thing that I wrote down, I wrote down a bunch of things. But first thing was when you said management pitch, and that's exactly what it is. And you highlighted in your learnings is that a management is good at pitching their story and their eternal optimists. You know, I've as a, as a broker, on the sell side, I've taken, probably gone to, let's say, more than 1000 company meetings where I've taken fund managers from around the world to meet with management here in Thailand. And I would say 95% of those were just a waste of time, most of the information could have been had on the internet. And I wouldn't say that there was anything, you know, in fact, it probably could have been even damaging, because the fund manager got to like that person, and all of a sudden, a whole new bias came in. The second thing I learned from those meetings was that senior management will never, and can never really tell you about the risks that are on the way because they they just don't, they don't communicate that they communicate the upside. And the second thing is that if they saw some really serious thing happening, they would have to disclose that to the market, not to any individual. So it made me question a lot about listening to management and all that. So I like the fact that you said make the management you know don't avoid management, but use it as a small input or the third. The second thing is that I did research A while ago where I looked at 5000 m&a, m&a deals across the world, to try to understand two things the return that you would get if you bought either the acquire or the company that is being acquired. And what I found that you got a little bit of an advantage by buying the company that was being acquired but not by much. Of course the way people make a lot of money and that is they tend to buy those companies that are being bought Before the announcement comes out that they're being bought. But the more important thing out of that study is I looked at the return on invested capital of the company, the parent company, three to five years going forward. And I found that in about 78% of the times, the return on invested capital was lower in the three to five years after the m&a deal, then than it was when the m&a deal happened, which tells you all of the talk of synergy is just talk. And I've lived through and anybody who has lived through one company buying another, they all talk about how it's going to work out. But in reality, it's just clash of cultures and human nature. Which brings us to the next thing that I thought about a lot when you talked and that is that a lot of young people particularly think that value investing is all about the numbers. But what you've told us that I think is really great is that actually the qualitative aspect is, the key numbers are just a tool that helps us kind of understand something. But that qualitative aspect. And finally, the last thing I wrote down, and I actually talked about this in my valuation masterclass, which is complexity versus simplicity. Like, when I was young, I thought that complexity, complexity really added value. And then I learned that actually, the deeper and deeper you go into some financial model or something like that, you're just, there's no benefit, once you get past a certain point, and the costs start to rise. So those are some of the things I took away. It's a lot of stuff. Anything you'd add to that. No, I think you summarized it. Well. Yeah. So let me ask you, based upon what you learn from this story, and what you continue to learn, what one action would you recommend our listeners take to avoid suffering the same fate?

Gary Mishuris 16:54
Well, I think, you know, I'm a big believer in systematically understanding behavioral biases. And I like to think about it in two stages. One is behavioral defense, which is kind of guarding against biases and twos behavioral offense, which is where no, as a value investor, you take advantage of the mistakes of market participants. And that's why, or big reason for why opportunities exist in the market from time to time. So I think especially on the defense side, I would say, try to be systematic, and try to be no rigorous and creating and have a checklist of behavioral biases and steps that you will need to take to try to minimize them. I think minimizing is probably the best we can do. We can't eliminate them with human. But I think being rigorous about that kind of approach, hopefully tilts the odds a bit in your favor.

Andrew Stotz 17:47
Great. So last question, what's your number one goal for the next 12 months?

Gary Mishuris 17:54
Well, I don't have you know, once that goes by, I think I'm a big fan of the stoic philosophy and keep heat out of the philosophy is that there's things you can control that are within your power to affect and there's things you know, that are outside of your control, and you can choose how you react, but you can't change them, right. And so I like to focus on my control within control is my process, right. And so my goal is to get a little bit better, this 12 months, and I've been doing for 20 years and knowledge compounds and process improvement is an old system engineer, long time ago, compounds and so I think my goal is to keep adding to that compounding and keep moving my process slowly and steadily in the positive direction. And hope that now, hopefully in the decades to come, those small changes, build and snowball into meaningful, positive improvement.

Andrew Stotz 18:56
Beautiful, well listeners, there you have it another story of loss to keep you winning. My number one goal for the next 12 months is to help you my listener, reduce risk and increase return in your life. To achieve this. I've created our community at my worst investment ever.com and I look forward to seeing you there. As we conclude, Gary, I want to thank you again for coming on the show and on behalf of a starts Academy I hereby award you alumni status for turning your worst investment ever into your best teaching moment. Do you have any parting words for the audience?

Gary Mishuris 19:28
No, but just keep learning and stay calm and you know, just focus in the process.

Andrew Stotz 19:36
Beautiful. Well, that's a wrap on another great story to help us create, grow and protect our well fellow risk takers. This is your worst podcast host Andrew Stotz saying. I'll see you on the upside.


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About the show & host, Andrew Stotz

Welcome to My Worst Investment Ever podcast hosted by Your Worst Podcast Host, Andrew Stotz, where you will hear stories of loss to keep you winning. In our community, we know that to win in investing you must take the risk, but to win big, you’ve got to reduce it.

Your Worst Podcast Host, Andrew Stotz, Ph.D., CFA, is also the CEO of A. Stotz Investment Research and A. Stotz Academy, which helps people create, grow, measure, and protect their wealth.

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